The Distributional Effects of Asset Purchases

In a paper published today, the Bank of England provides an initial analysis of the distributional effects of its asset purchase programme.

Published on
12 July 2012

The MPC sets monetary policy for the economy as a whole in order to achieve the Government’s inflation target. Changes in interest rates and asset purchases financed by issuing reserves (QE) unavoidably have distributional implications.

Without the Bank’s asset purchases, most people in the United Kingdom would have been worse off. Economic growth would have been lower. Unemployment would have been higher. Many more companies would have gone out of business. This would have had a significant detrimental impact on savers and pensioners along with every other group in our society. All assessments of the effect of asset purchases must be seen in that light.

The Bank’s asset purchases have been almost entirely of gilts, causing the price of gilts to rise and yields to fall. But this in turn has led to an increase in demand for other assets, including corporate bonds and equities. As a result, the Bank’s asset purchases have increased the prices of a wide range of assets, not just gilts. In fact, the Bank’s assessment is that asset purchases have pushed up the price of equities by at least as much as they have pushed up the price of gilts.

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